Market roundup - moving up?

Notable acquirers have been The Old Station Nursery (which bought Sunhill Daycare), Family First (which acquired Head Start), ICP Nurseries’ acquisition of/ merger with Cresswell, and continued expansions by Welcome Nurseries and MiChild.

Some of the acquisitions have been purchases of fundamentally solid businesses, some of these were seeded before the first lockdown, and there hasn’t yet been a deluge of ‘distress’ acquisitions, which were initially anticipated – mostly on account of the furlough scheme which has saved jobs for now. 

Despite the third lockdown recently coming into place, we expect transaction activity to continue in the short term, as a number of owner-operators try to get deals done before the anticipated changes in Capital Gains Tax at the beginning of March.

Predicting activity immediately after that is a little more difficult, both in terms of volume and acquisition profile (distress versus high performing businesses) – it depends on the nature of economic recovery, and any future Government actions on lockdown, furlough, funding (providers are now being paid on profile rather than historical enrolment) and other support.

However, in the medium-to-longer term there is still a strong appetite to invest in the sector driven by its fundamentals and its ability to bounce back (we surveyed a selection of group of operators at the end of last year and over 80 per cent expected a full recovery over the course of 2021), as well as the consolidation thesis.

Over the coming 12 months, the historic approach to pricing will in many cases be superseded by more creative approaches (at least for smaller businesses), which could include a contingent amount rather than all cash upfront.

Arun Kanwar, partner at consultancy Cairneagle Associates LLP